Most retailers are in a never-ending quest to squeeze more profit out of every customer and transaction. Especially after some choppy years influenced by COVID-19 and soaring inflation.
You’ve probably noticed the abundance of places that now ask for tips when they didn’t before. Another less-often discussed trend? Asking if you want to buy an extended warranty on almost anything.
Are any of these warranties for random electronics, clothing, kitchen supplies and more ever worth it? That’s what a listener of the Clark Howard Podcast recently asked.
Are Extended Warranties Ever Worth the Money?
I want to shop smart and don’t always know how to answer when a retailer offers me a warranty. Are these extended warranties ever worth it?
That’s what a listener asked on the Aug. 17 podcast episode.
Asked Ingrid in Georgia: “What are your thoughts on those warranties that are offered with everything you buy now? They normally offer one or two-year protection.
“I’ve been offered warranties on everything from my laptop to wireless earbuds to my air fryer. Are they worth it? There is also usually a limited warranty for the product anyway.”
Ingrid is correct. When you buy certain items, such as higher-end electronics, you should automatically get some level of manufacturer’s warranty. Your credit card may also double the manufacturer’s warranty.
So you can secure double protection for yourself for free just by using a particular credit card to make your purchase.
Does Clark think an extended warranty from a retailer is ever worth it?
“Ingrid, the answer is no, they are not worth it,” Clark says. “You should not buy them. I cannot think of an exception.
“I make a joke about when you’re in an electronics store and you’re buying a TV and they say, ‘Don’t you want to protect your investment?’ A TV is not an investment!
“I saw one not too long ago that shocked me. An extended warranty on tennis shoes. So the answer is no thank you, no thank you, no thank you. Always.”
Why Insuring Yourself Is Best for Your Wallet
The sales pressure you get at the register typically is twofold.
First, you probably feel like you have to make a quick, rushed decision. You’re in line, you’re ready to pay and suddenly you face a decision about buying this extended warranty.
Second, your salesperson may be insinuating that the smart thing to do is to buy the protection. You do want to protect this nice new laptop you’re buying, right? Wouldn’t it be a shame if you dropped it tomorrow and didn’t have this protection?
But it’s best to make this type of decision based on logic rather than emotion. And the historical math is very clear what a bad deal these extended warranty plans present.
“They’re a total waste of money,” Clark says.
“In fact, I can tell you that the last time I saw data on this, the payback for every dollar a consumer pays on purchases for extended warranties – the payback is 8 cents. In other words, the average amount of loss you take is 92 cents of every dollar you pay.”
There’s an element of focusing on the odds rather than on outlier outcomes. Are there examples where people bought an extended warranty, had their item break past the manufacturer’s warranty and had their item replaced? Yes.
But the likelihood is that if you buy an extended warranty every time, in the long run, you’ll lose a lot of money. Your expected return is negative.
“All the different things that they try to push warranties on or extended service contracts — you don’t want ’em. Don’t buy them,” Clark says. “You’re better off being your own insurance company for the occasional item that does croak on you.”
Extended warranties often are a play on your emotions. No one wants to spend decent money on an item that could break or somehow not work. (Clark doesn’t even recommend an extended warranty on a major purchase like a car.)
However, you’re far better off using your own emergency fund to backstop any unforeseen expenses. You’ll lose 92% of the money you spend on extended warranties, Clark says. So the answer, when a salesperson asks, should be an easy “no thank you.”